Should You Fear a Market Plummet Whenever Harry Reid Speaks?
NEW YORK ( TheStreet) -- Your best bet is to not bet against Harry Reid. Simply ask the markets.
The U.S. Senate majority leader from Nevada emerged late Tuesday afternoon to tell reporters that it would be "extremely difficult" to address the so-called fiscal cliff before Christmas. The comment triggered a selloff in the the major U.S. equity indices late in the day.
"Harry Reid pulled an Apollo Creed , it was kind of like a quick punch to the market," said Michael Gayed, chief investment strategist at Pension Partners.
Reid's comments may have initially concerned investors as the Democrat provided the first bit of clear language about fiscal cliff talks since President Barack Obama and his administration suppressed details of discussions that had transpired with House Speaker John Boehner over the weekend.
Boehner's office hasn't offered the public any more color other than that "the lines of communication remain open" between both sides. The White House also remained silent on the issue as Press Secretary Jay Carney said on Monday that he believed the best prospect for reaching an agreement was to not read details of the conversations between Obama and head lawmakers .
Reid has stood behind the president's plan to extend middle-class tax cuts and raise rates on the top 2% of income earners throughout the fiscal cliff debate, so his suggestion that a deal may fail before the holiday break was the first signal in days from a leading Democrat that negotiations may not be going as smoothly as presumed .
Stocks finished higher on Tuesday, but Reid's comments ended the rally and the major averages never returned to their intra-day highs.
So why is it that Reid's comments jolted the market, while investors seemed to shrug at Boehner's comments earlier in the day ?
"This is one of the toughest son of a bitches you'll ever meet," said one source who has been a friend of Reid's since the politician first ran for the House of Representatives in 1982. "This is a guy who ran the Nevada Gaming Commission and effectively de-licensed the mob -- they put a contract out on his life ... his wife got in the car one day, turned the car on, and there was a bomb in it . ... He told them to go screw themselves."
The source doubted that Reid would ever back off the position to raise taxes on the wealthiest 2% of income earners -- a buzz saw issue that Boehner's Republicans have refused to agree on.
It's possible that the market ticked lower because it bet that Reid wasn't bluffing, but the indices managed to swing back, albeit not at session highs.
"Small-cap stocks, relative to large-cap stocks, are much more dependent upon U.S. domestic economic growth -- more revenue comes to small-caps than large-caps," said Gayed. "If you look at the way small-caps behaved, sure they fell after Reid's comments, but they didn't underperform; it's not like they were down more in that decline."